Bull market in common sense likely to emerge in the post-bubble world

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In his latest interview with Jim Goddard, Bob Hoye from ChartsandMarkets.com explains how the end of a powerful move in commodities ends up in a bust. That sets up a subsequent mania in financial assets which also does not end well. 

Click to listen

As is custom in his broadcasts, Hoye puts today's financial world in riveting and sometimes eerie historical perspective.

This is what happens, you go into a world of inflation in financial assets after the terrible world of inflation in consumer prices, wages and everything. That more or less has been on since you had a rise in commodities up until 2008, when the price of crude got up to $147.

Hoye's work indicates that about 9 years after a top in commodities, a top in financial assets follows. Hoye reckons that the key stock markets outside the U.S. peaked in January, 2018, which is around 9 years and 7 months after the last big top in commodities. Hoye goes onto dismiss any suggestion that we might be at the start of a new bull market as seen in 1982. Instead he warns:

This is the start of what could be a post-bubble contraction

When Hoye looks at the major characteristics of a great financial bubble he believes they were more evident in 2017 going into 2018, than they were even with the bubbles of 2007 or 2000. However, so far, the characteristcs of initial liquidity problem have been milder than say the fall of 1929. There is one thing missing right now, explains Hoye:

With the change in the credit markets, like the yield curve and credit spreads, it has been dramatic enough that some big players somewhere are probably offside, but there has not been announcements of insolvencies. So, the changes in the markets, are perhaps dramatic enough that there should be big players offside, but perhaps they are just holding it all together until the markets are tested yet again.

The bounce out of Christmas has been quite vigorous, and Hoye believes it needs a rest or correction. However, he notes the stock market, industrial commodities and credit markets can be favourable into March as that is a seasonal time when things are typically okay. Nevertheless, based on all the features in all the great financial booms throughout history, Hoye's conclusion is straightforward and bearish:

The bubble was a classic and the transition to the contraction has been on the path but with the distinction that there has been no major disasters reported yet.

Hoye's methodology indicates that the markets were oversold at Christmas and are overbought now.

On crude, Hoye characterizes the move by Alberta to cut oil production as part of an evil game by control freaks trying to control people's lives. At some point, Hoye believes people will have enough of government interference and support more pro-market policies

Canada should be allowed by the government in Canada to transport energy as most efficiently as possible from where it is to where it isn't.

Hoye notes that the push for alternative energy is very expensive, and as utility bills keep going up he believes it lead to a new bull market in common sense. In the case of England Hoye remarks:

People are power poverty stricken. People cannot afford to heat their homes.

Hoye warns that if the UK gets another cold spell, it could have tragic consequences. Hoye ends by reminding everyone about the dire predictions from global warming guru James Hansen that the summers in the Arctic would be free of ice by now, but that is not the case.



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